Item 7.01 Regulation FD Disclosure.
The following correspondence was sent to the
On
The Company now provides this letter in support of our Form 1-A/A providing an analysis of why the Company should not include financial statements and/or pro forma information for the Pending Target with its Form 1-A/A.
Analysis
Part F/S of Form 1-A and Rules 8-04 and 8-05 of Regulation S-X regard the rule for providing financial statements for a business acquired or to be acquired. For a business that is to be acquired, the rule is that financial statements must be provided if a business acquisition is (i) "significant" and (ii) "probable" to occur.
We concede the significance of the Pending Target based on revenue and assets
versus pre-acquisition standalone financials. Were the proposed acquisition to
close, it would be a significant acquisition that would require financial
statements to be audited and target and pro forma financial statements filed
with the
According to the SEC Financial Reporting
The facts that underlie our analysis are as follows:
1. The parties executed an amended restated letter of intent in line with their original intentions versus the prior now void agreement that stated the transaction was "binding" (it was a form document provided by a business broker). There is no "good-faith" money or any other consideration on deposit or promised by the Company binding it to the pending acquisition; 2. There is no penalty in the document signed if the Company fails to close the acquisition or does not make the first cash payment, which is now due onJanuary 15, 2023 ; 3. The due date of the first cash payment was extended with no consideration required to be paid for obtaining the extension; and 4. The Company's Due diligence of the target has just begun and financial accounting and statements for the target have yet to be provided.
The foregoing facts show that the legal status of the pending transaction still requires the Company's management and the Seller's management to make a business judgment on whether to close the acquisition, which they can make solely on the merits of the acquisition in their judgments without any legal ramifications if either party decides not to close. Therefore, the pending transaction is not probable.
Furthermore, I respectfully disagree with your analysis in your comment letter
dated
"Rules I do not like of a game I have not yet decided to play, will make me less likely to play the game."
Accordingly, please note, when discussing use of proceeds of the Offering for the Pending Transaction, we reference the risk factor that I, Management, have wide discretion over use of the funds within my business judgment. I have many transactions I would like to complete to add value, but none of them are more than ideas or a deal "pipeline". No potential transactions are probable until they move to the signed definitive agreement stage. This proposed transaction is simply an LOI and not definitive and therefore not probable.
This again is why assessment of probability suggests that the financial information of the Pending Target, is not necessary to make an investment decision.
The legal status of the transaction is now explicitly a non-binding LOI. That is not only critical to our analysis that the transaction is not "probable", but also that inclusion of the Pending Target's financial information would confuse, cloud, or muddy the financial information available to make an investment decision:
An investor and management may have very different conclusions about whether the financial statements of the pending target are substantial at the as-negotiated price; however the business judgment of whether to close rests solely with the Company's management with the current legal status of the transaction providing any additional information, about what management will decide. This also applies to the Seller, whose management may cancel the transaction on their end for any reason, at any time, and without cause. Therefore, our analysis led us to conclude that, vis-à-vis this pending transaction, an investment decision is better made based on the past performance as reflected in the Company's current financial statements, rather than by evaluating the financial information of a pending acquisition that it is not legally bound to.
Our Company has not yet received any financial accounting of the Pending Target other than the unaudited revenue and earnings figures we received from the Pending Target's management. Access to QuickBooks and financial records and an extensive due diligence data room is in the process of being granted to us, our financial advisors, and consulting staff. Altogether this underscores the early nature of the potential acquisition, showing that there are too many unknowns to conclude that the pending is acquisition is probable. For the foregoing reasons, we have determined not to include the pro-forma financial statements of the pending target because the Company's acquisition of the target is "not probable."
It has been approximately 18 months since I was appointed CEO of
Being an
Please approve the proposed offering of equity by
If you have any questions regarding this issue, please do not hesitate to call
me at (212) 731-4806 or
Item 9.01. Exhibits Exhibit No. Description 10.1Himalaya Technologies, Inc. , Correspondence toSEC :January 5, 2023 104 Cover Page Interactive Data File (embedded within the Inline XBRL document)
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